Obama agrees to GOP plan to cut costs by lowering retiree COLAs

Dec. 18, 2012 - 11:25AM
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President Obama agreed Monday to a proposal from House Speaker John Boehner to switch to the so-called chained Consumer Price Index in his debt-reduction counteroffer to Boehner. (File)

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President Obama, in his latest proposal to avert the so-called fiscal cliff, has reportedly agreed to a less-generous measure of inflation, which would lower cost-of-living adjustments for federal retirees’ pensions.

The Washington Post and CNN reported that Obama agreed Monday to a proposal from House Speaker John Boehner toswitch to the so-called chained Consumer Price Index in his debt-reduction counteroffer to Boehner. The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements.

Switching to a lower CPI at first would mean a few hundred dollars less per year for federal retirees. But its effect would compound over the years and decades until eventually, some retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.

Federal employee groups blasted the idea of switching to a chained CPI.

“President Obama could not have picked a worse or more regressive item in the House Republican budget than the chained CPI,” said J. David Cox, national president of the American Federation of Government Employees. “This element of the proposed deal to avert sequestration is unconscionable. It will create far more harm for federal employees and other middle-class families than almost any other of the despised proposals from [Rep.] Paul Ryan’s House budget.”

The National Active and Retired Federal Employees Association sent lawmakers a letter that called the chained CPI a faulty measure of inflation. Chained CPI does not account for seniors’ health care costs, NARFE said, and a method of measuring CPI that includes health care costs would result in higher COLAs than the current method.

That is “perhaps a sign that moving to the chained CPI is going in the wrong direction,” NARFE wrote.

The Moment of Truth Project, which is co-chaired by former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson, said in a paper that the switch could save the government more than $290 billion over the next decade. Simpson and Bowles also pushed for a transition to the chained CPI in 2010 when they headed the White House’s deficit reduction commission, saying it was a more accurate measure of inflation than the current system.

Critics of the government’s current method of setting inflationary rates say it does not account for changes in consumers’ buying habits as prices increase. For example, if apples become more expensive, most consumers will adjust by buying fewer apples or switching to a cheaper fruit. The chained CPI attempts to take those changes into account.

Chained CPI would also lower the COLAs for military pensions, Social Security benefits, and other indexed portions of the government’s budget. It would also mean tax bracket thresholds would increase more slowly, effectively raising taxes by $62 billion nationwide over a decade.